200509331H



HEARING NO.  43,939

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: JANUARY 1, 1998 THROUGH DECEMBER 31, 2001

SALES AND USE TAX/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

ANNE K. PEREZ
Administrative Law Judge

JOHN D. BOSTICK
Representing Tax Division

**************
Representing Petitioner


COMPTROLLER'S DECISION


PRELIMINARY DISCUSSION:

An oral hearing in the captioned matter was held on August 10, 2005.  No one 
appeared on behalf of the Petitioner.  John D. Bostick appeared on behalf of 
the Tax Division.  No witness testimony was offered.

The Administrative Law Judge took official notice of all records of the 
Comptroller's office that pertain to Petitioner and the issues involved in the 
case.  Unless otherwise indicated, all Section references are to Title 2, Texas 
Tax Code Ann. (Vernon 2002).  References to Rules are to sections of Title 34, 
Texas Administrative Code.

PETITIONER'S CONTENTION:

Petitioner contends that its purchases of gas and electricity were 
predominantly for residential use and thus qualify for exemption under Section 
151.317.

FINDINGS OF FACT: 

1. **************, Petitioner, operates a motel in **************, Texas.

2. Petitioner’s motel incorporates two buildings, one with 21 rental units and 
another with 27 rental units.  Six of the rooms are equipped with a 
stove/refrigerator combo and are generally rented to long-term guests, as well 
as employees.

3. Petitioner was audited for Texas sales and use tax compliance for the period 
January 1, 1998 through December 31, 2001, as a result of which a Texas 
Notification of Audit Results dated January 17, 2003, was issued, reflecting a 
tax deficiency and statutory interest as of the date of the Notice.  Penalty 
waiver was granted.  Petitioner’s timely request for redetermination resulted 
in the instant proceeding.

4. Petitioner’s audit liability was the result of additional taxable sales, 
additional taxable purchases of asset and expense items, and disallowed refunds 
of tax on Petitioner’s purchases of natural gas and electricity.  Only the 
disallowed tax refunds are disputed herein.

5. Petitioner submitted utility studies to the auditor and to a Comptroller 
Dispute Resolution Officer for the periods (a) April 1997 to March 1998, (b) 
April 1998 to March 1999, (c) April 1999 to March 2000, and (d) April 2000 to 
March 2001.  The utility studies are not of record because Petitioner did not 
appear at the hearing and offer them as evidence.  Thus the basis for the 
studies, including the figures, assumptions, and calculation formulas contained 
therein, is unknown.  

6. It is known from the Record of Audit Planning, Activities, and Audit Results 
and from the Dispute Resolution Report that the described utility studies were 
rejected for the following reasons:  (a) the studies assume that long-term 
guests use more electricity than short-term guests, (b) it is unknown how the 
hourly usage of electrical items in the motel rooms was calculated, (c) the six 
rooms generally rented out to long-term guests or employees were not 
individually metered, (d) all 48 rooms of the motel were not accounted for, and 
(e) the number of rooms for rent varied in each utility study, probably because 
average figures were used.

CONCLUSIONS OF LAW AND DISCUSSION:

Petitioner’s contention should be denied.

Sales tax is imposed on each sale of tangible personal property in this state.  
See, Sections 151.051 and 151.010.  Natural gas and electricity are tangible 
personal property for sales and use tax purposes.  See, Rule 3.295(b).  
Petitioner’s purchase of natural gas and electricity for use in the operation 
of its motel is presumed subject to sales tax.  

The auditor determined that Petitioner did not qualify for any tax exemption 
and disallowed the sales tax refunds that Petitioner had previously obtained.  
Petitioner asserts that the disallowance was in error and that the gas and 
electricity qualify for the residential use exemption set forth in Section 
151.317(a).  Exemptions from taxation are subject to strict construction 
because they inherently place a greater burden on other taxpayers. Bullock v. 
National Bancshare Corp., S.W.2d 268 (Tex. 1979); North Alamo Water Supply 
Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894 (Tex. 1991).  Thus, the 
courts have required a taxpayer claiming an exemption from tax to prove its 
entitlement thereto by clear and convincing evidence.  The Comptroller has done 
the same by rule.  See, Rule 1.40(2)(A).    

With respect to the claim at issue, natural gas and electricity are exempt from 
tax if purchased for residential use.  See, Section 151.317(a)(1).  The 
definition of “residential use” includes the use of a dwelling, home, 
apartment, or building by a tenant who occupies the premises under a contract 
with terms that exceed 29 consecutive days.  See, Section 151.317(c)(2) and 
Rule 3.295(a)(8). [ENDNOTE]  If no written contract exists, then only the use 
during the period in excess of 29 consecutive days will be treated as 
residential use.  See, Rule 3.295(a)(8).  The record evidence establishes that 
six of the 48 rooms in Petitioner’s motel were equipped for residential use, 
indicating Petitioner made both taxable and exempt uses of gas and electricity 
during the audit period. 

Petitioner’s six motel rooms subject to exemption were not individually 
metered.  Rule 3.295(d)(1) provides that if purchases of gas and electricity 
under a single meter are used for both taxable and exempt purposes, an 
exemption may be claimed only if the predominant electricity use (i.e., more 
than 50% of the use) under that meter for 12 consecutive months is exempt.  The 
exemption must be established by a utility study that meets the requirements of 
Rule 3.295(e)(1).  In order to establish predominant residential use, the 
utility study must determine not only which rooms were rented in excess of 29 
days, but it must establish the actual electricity usage attributable to the 
residential rooms.  See, Rule 3.295(e)(1); also, Comptroller’s Decision Nos. 
37,491 (1999), 34,564 (1997) and 33,122 (1996). 

This record does not contain the utility studies referenced in Finding of Fact 
No. 5.  However, it is known that Comptroller personnel rejected the studies 
because they were based upon improper assumptions, as well as insupportable 
figures.  In any event, Petitioner has failed to demonstrate by clear and 
convincing evidence that more than 50% of the natural gas and electricity use 
at its motel was for exempt residential use.  In the absence of valid 
predominant use utility studies, the presumption is that Petitioner’s purchases 
of natural gas and electricity were taxable and its exemption claim must be 
denied.

RECOMMENDATION:

Based upon the foregoing findings of fact, conclusions of law, and discussion, 
the audit liability should be upheld. 

SIGNED September 12, 2005.


ANNE K. PEREZ
Administrative Law Judge

HEARING NO. 43,939

ORDER OF THE COMPTROLLER

The above decision of the Administrative Law Judge, resulting in Taxpayer's 
liability as set out in Attachment "A" which is incorporated by reference, is 
approved and adopted in all respects.  This decision becomes final twenty-three 
(23) days from the date of this Order, and the total sum of the tax and 
interest amounts is due and payable within twenty (20) days thereafter.  If 
such sum is not paid within such time, a penalty of ten percent of the taxes 
due will accrue, and interest will continue to accrue.

If a rehearing is desired, a Motion for Rehearing must be filed with the 
Administrative Law Judge no later than twenty-three (23) days after the date of 
this Order, and must state the grounds upon which the motion is based.

RENDERED and ISSUED September 12, 2005.


CAROLE KEETON STRAYHORN
Texas Comptroller

ENDNOTE:

During most of Petitioner's audit period, the definition of "residential use" 
was contained in Rule 3.295(a)(8) (version effective March 7, 1996).  The Rule 
was amended effective September 20, 2000 and the definition was renumbered as 
subsection (a)(6).  This decision will refer primarily to the earlier Rule 
version because it applies to most of Petitioner’s audit period.  Any 
significant revisions contained in the later version that affect Petitioner 
will be noted.




ACCESSION NUMBER: 200509331H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 09/12/2005
TAX TYPE: SALES